Stocking Up: Component Orders During Turbulent Times

During the 2000-2001 technology bubble burst, inventory was a looming evil that hung over the assembly houses, dragging the sector under and preventing fast recovery. The notion of lean manufacturing, regardless of company size or end-market, took hold, and electronics assemblers have been wary of building up chip inventories ever since. With the current recession battering other sectors more brutally than it is hitting technology companies, we can ask, Did we learn a valuable lesson nearly a decade ago? One indicator is the monthly chip buying indices from the Electronic Components, Assemblies, and Materials Association (ECA) and the Semiconductor Industry Association (SIA).

“I think we are seeing adjustment of inventories from manufacturers and distributors based on market slowdown,” said Bob Willis, ECA president, adding “The industry learned a lot from the train wreck of 2000. There is more transparency in the supply chain, enabling companies to better anticipate changes in demand and adjust accordingly.” To measure the success of supply chain management, we can examine the numbers for component orders in 2009. In January, orders were in freefall, as the global recession slashed consumer demand, corporate spending, and auto sales. New projects were put on hold, and volumes decreased. Did this lead to overstock? It seems not, as component orders continued to fall in February, but not as sharply as in January, according to the monthly index compiled by the ECA. The 12-month average, comparing 2009’s results to last year’s, continued a descent that began last summer and has continued through the present. By March, orders ticked up slightly.

Worldwide sales of semiconductors were $14.7 billion in March, a gain of 3.3% from the prior month when sales were $14.2 billion, the SIA reported. ECA’s numbers confirm that component orders bounced back slightly in March from lows in the first two months of the year. “The modest sequential rebound in worldwide sales in March suggests that demand has stabilized somewhat, albeit at substantially lower levels than last year,” said SIA President George Scalise. For SIA's geographic breakdown of orders, see the above charts. So demand was lower than the prior year, but without the stocking hangover experienced in the last recessionary period.

Electronic component orders dipped again in April, ECA reported (see graph). Worldwide sales of semiconductors rose to $15.6 billion in April, SIA saw, an increase of 6.4% from March. April sales were 25% lower than April 2008 when sales were $20.9 billion. ECA's Willis thinks that many OEMs, wary of continuing uncertainty in the market, are only buying parts for which they have firm orders from customers. “As stimulus programs begin kicking in, the consumer electronics industry could see some stabilization,” said Willis. “If so, this should be reflected in new orders that would bring a slow recovery beginning in late summer or early fall.” Economic stimulus measures in the U.S. combined with other countries’ stimulus plans will begin to impact sales as we enter 2010, was Scalise’s SIA assessment.

SIA reports that sales for Q’01 2009 amounted to $44.0 billion, a 29.9% decline from the first quarter of 2008 when sales were $62.8 billion. Sales declined by 15.7% from Q’04 2008 when sales were $52.2 billion. Sales in all geographic regions except Japan showed month-to-month gains. Sales in Japan were sharply lower, reflecting a drop in the country's economic output. All geographic regions reported lower first-quarter sales compared to the same period of 2008 (see graph).

Smaller volumes and longer consumer purchasing cycles are hallmarks of recession and truly are destroying some giants of industry, particularly in the automotive sector. With component purchasing at levels below those pre-recession, no one can claim surprise. However, seeing demand rebound so quickly as to be measured in months rather than years impresses upon us that the electronics sector has made good use of hard lessons learned earlier in the decade.

REFERENCES:
Beginning with July 2008, ECA made two major changes in its monthly order index. The first change was to update the index baseline year from 1996 to 2006 to better reflects today’s market realities. The second change is to report numbers for North America only, which is expected to improve the consistency of results from reporting companies. The index has proven to be a leading indicator of market movement and sales trends. Actual sales numbers tracked by several marketing firms have shown that the index provides a four- to six-month glimpse of potential ups and downs in the market. The new index reflects more dramatic movement in the adjusted four- to five-week order trending. Results from the 12-month moving average are expected to be similar to previous reports based on the 1996 baseline. ECA Website: http://www.ec-central.org/

The SIA Global Sales Report (GSR) is a three-month moving average of sales activity. The GSR is tabulated by the World Semiconductor Trade Statistics (WSTS) organization, an independent, non-profit organization established by the global semiconductor industry to compile industry statistics. SIA Website: http://www.sia-online.org/

Meredith Courtemanche, managing editor

PCB Design for Manufacturing: Soup to Nuts

Sunstone Circuits and National Instruments announced a collaboration this week, with National Instruments joining Sunstone’s “ECOsystem design environment” for PCB design. Sunstone is aiming for a design approach that brings customers from disparate CAD files, mechanical layouts, bills of materials (BOMs), and the like into one sleek supply chain that integrates module design, parts ordering, physical planning, and more.

National Instruments adds a new gear to the machine. Customers using NI Multisim and NI Ultiboard can order prototype PCBs via the Sunstone ECOsystem, and Sunstone is hoping more off-the-shelf hardware providers will follow suit. Electronics assemblers are stretched to the limit for resources and resource management, Terry Heilman, president and CEO of Sunstone, explained, and automating the process, eliminating human error and time-wasting activities, is the way to bring PCB design and prototyping into manageable and valuable work schedules. The full news story about National and Sunstone’s collaboration is available on smtonline.com.

Small design problems snowball, classically, causing massive problems at the manufacturing stage. Design for manufacture (DfM) is one of the most important tools prototype/new product designers can use to stay on time and on budget. Consider a disconnect between mechanical and electrical design. At the design phase, with DfM, component height tolerances are established and the finished assembly fits properly in its case when manufactured. Without DfM, one component may be too tall for the PCB’s case, for example. A new component must be substituted, BOMs changed, new parts ordered, etc.

By adding National Instruments to the ECOsystem, Sunstone is amassing companies that specialize in certain areas — National for PCB assemblies, Digi-Key for component sourcing, Screaming Circuits for PCB build — and properly networking them to serve the electronics designer and manufacturer most efficiently and transparently. Fewer people and less time, less waste, lower investment are all goals for the ECOsystem users.

Recently, I was part of a team that launched SMT’s newest sister publication, PVWorld. We launched the Website on schedule, not without any bumps and baubles and retracing our steps. The element that kept work flowing was a close interaction with the website designers, content managers, and other online gurus that instructed us and knew how to resolve every issue that came up. Can it work? Can the new product introduction (NPI) supply chain progress smoothly like a well-oiled machine? It may not happen every time — certain parts are not available through certain distributors, last-minute changes from above may push designers back a step or two, freak snowstorms may hold up a delivery truck on its way to the EMS provider — some wrenches in the gears cannot be helped. But the ECOsystem concept represents an ideal that Sunstone is pushed toward achieving, adding partners at a fast clip, including the most recent National. The ECOsystem works like a consortium product, with all companies contributing toward the goal of DfM.

Meredith Courtemanche, managing editor

Taking Cue from CES, Window-shop Your Work

With Macworld and the Consumer Electronics Show (CES) generating a modest amount of excitement in the midst of depressing economic indicators, sorting through the new product releases, news wires, and other media outlets has become a mixture of electronics news and online shopping. Hybrid lawn mowers, color-changing iPod-enabled touch-sensor-laden alarm clocks, flexible wrist-worn communicators, and other devices make good use of LED technology, flex circuits, and advanced electro-mechanical design. By far the most hyped new products in this era of tight-belted dour consumers are the thinnest, most mobile PCs and Macs. And while we're talking about hype, let's take a lot at the new crop of green electronics.

Though much of Macworld's buzz focused on the health of Apple founder Steve Jobs, iPods still were the darling of accessory and upgrade providers. Thin, feature-rich, miniaturized computing devices are driving the consumer electronics business; no surprise there. Macworld hosted the debut of Axiotron's Modbook Pro tablet computer. HP unveiled a new mini laptop, HP Mini 2140 Notebook PC, weighing 2.6 pounds. AMD released a platform for ultrathin notebooks, based on the new AMD Athlon Neo processor and ATI Radeon X1250 integrated graphics. They are targeting "exceedingly thin and light OEM designs with rich entertainment capabilities at an affordable price."

And it isn't just computers. Hitachi's CES showcase included a 50" ultra thin (35 mm) plasma TV prototype and the next-generation 15-mm LCD display prototype with RGB LED back light. Speed and high-quality user experience — meaning rich graphics and interconnectivity — are highly touted on the next generation of mobile devices debuting at the shows. Toshiba, for example, announced support for the ATI Mobility Radeon HD4000 series of graphics processors in its laptops. NEC Electronics America Inc.'s power management IC lineup at CES was tailored to the mobile computing, mobile entertainment device market. Intel highlighted its Centrino 2 processor technology-based systems, as well as a new kind of personal-area network designed to link up cameras, printers, and other Wi-Fi devices around the user.

Toshiba also promoted its Portégé R600 ultraportable laptop PC, with a twist. In addition to portability and capability, the laptop is ranked one of the most eco-conscious laptop computers sold in the U.S., by the federal Electronic Product Environmental Assessment Tool (EPEAT), according to Toshiba. The green electronics trend has indisputably impacted Macworld and CES, with many brands advertising the recyclability and low energy usage of electronic devices. Is this the result of RoHS and similar legislation, or part of the larger green trend sweeping apparel, automotive, flooring, and other industries?

It's important to remember where these products came from — innovative PCB design and prototyping assembly are in evidence across the board — when looking at the finished goods. If you're designing electronic products or manufacturing them for a designer, think like the consumer, or other end user, as often as possible. Will I drop this often? Under what temperature/moisture conditions would this be used? Would I pay this price? More? Less? Most new product introductions (NPIs), if not all, should have a priorities list attached to them: cost, reliability, harsh environment endurance, etc. Thinking like the user rather than the fabricator can help us hone these priorities to more exacting assessments.

While thinking like the consumers of electronic products, you might want to check out the winners in the Crunchies, an Internet-voting-based awards program for compelling new technologies, interfaces, and tech businesses. Thinking like an electronics consumer can be fun, and it also can help your electronics design and manufacturing business in intangible ways.

Meredith Courtemanche, managing editor

EMS Trends

Meredith Courtemanche, managing editor

Bringing together the A-Line on-the-conference-floor assembly line for producing a sample board at IPC Midwest with IPC, The Morey Corp., and our equipment providers gave me a unique insight into the amount of work that goes into every PCB assembly manufactured. To dig deeper into the EMS industry, I chaired a panel of EMS providers at the show in September. The speakers provided concise advise for keeping EMS lines running efficiently and keeping OEM customers on track and happy, for product development, project launch/new product introduction (NPI), manufacturing, and program management. Concise, efficient, and resourceful. What else would you expect from this industry?

Presenters included Susan Mucha of Powell-Mucha Consulting, Kevin Stone of Kimball Electronics Group, James Scholler of MEC Innovation, and Ross Clark of The Morey Corporation. Major trends in the EMS industry included robust product launch/new product introduction (NPI), communication and awareness with the customer and your supply chain, and resource and risk responsibilities.

Jim Scholler, VP of technology of Milwaukee Electronics Companies (MEC), presented on the development of knowledge that the EMS company needs to gather from many sources, beginning with suppliers, to produce boards smoothly. Though the ideal situation would be to transfer knowledge to EMS providers so that they have 100% of what's needed to do a run on the first day, most likely that won't happen. Product knowledge transition starts with the customer. Traditionally, batches of knowledge are transferred from one stage to the next. Because of the need to reduce time-to-market, several steps need to be shortened; BOM completion, tooling release, supply chain setup, and material completion all need to have knowledge transferred earlier. Scholler developed flexible stage gates with sign-offs at various points. "If we're going to keep things moving, we've got to get out of the batch delivery stages," Scholler explained. He identified freeze gates incorporated on the critical path, an ever growing list of features frozen (not documents) to keep the project flowing. Package design, suppliers, equipment manufactures must all be part of the equation. Kevin Stone, director of business development, public safety, Kimball Electronics Group, presented some other useful tips for NPI, like the concurrent development model. This keeps production from being held up waiting on materials to come in. If an EMS provider is working with lean or Kan Ban, then it might takes a long time to line up everything early because items aren't on line already in back inventory. Responsibility has to be frozen at critical points to assign responsibility to know who will do what when in an EMS environment to build a product successfully on time and at budget.

Sue Mucha, author of Find It. Book It. Grow It. A Robust Process for Account Acquisition in Electronics Manufacturing Services, and president of Powell-Mucha Consulting, discussed outsourcing and good business relationships. Mucha's advice for the EMS/OEM community revolved around resources. What elements of producing an electronic assembly do you have resources for? What could you do better if you had ample support? "The reality is that even small EMS providers should be able to provide full support to their customers," Mucha explained. OEMs can justify the cost of "additional" services like lifecycle support and design for excellence (DfX) by outsourcing them to the more experienced and more efficient EMS provider. EMS providers already have established relationships with each link in the supply chain, making production times faster and sourcing smoother. As Scholler stated, a deliverable is whatever is of value to the customer. A feasibility audit isn't needed, but design for test is, for example. By outsourcing these aspects to the EMS provider, the OEM is "purchasing" resources without having to dedicate personnel or training to that element of their product, added Mucha.

Stone drew from his experience in engineering and high-reliability markets when he discussed the importance of a robust product launch. A new product introduction can be a new product on the market, a new product for that EMS provider, or even a new product for a particular facility of that EMS provider. Stone pointed out that sooner is always better with measures like design for test (DfT) and design for manufacturability (DfM). "Once you're past the PCB fabrication stage, it is almost too late for DfM/DfT," he asserted. Automation always is better than manual tasks when you're looking for DfM success.

Ross Clark, marketing manager, The Morey Corp., was SMT and IPC's main contact point for developing the keychain PCBA that IPC Midwest attendees took away from the A-Line. His role in orchestrating a cohesive line with all new machines from four different equipment suppliers shaped his presentation about role definition. We had to figure out how to talk to each other, between the machines and the operators, he explained. Time was the most important factor in preparing the product and the assembly line itself. Feature-richness and board complexity decisions were dictated by this important parameter, Clark explained, to ensure that we had a board built to specifications in time for the tradeshow. Awareness of your clients' particular needs and processes is crucial, agreed all of our presenters. Scholler talked about the critical components in a design including boundary scan to illustrate the EMS provider's middle-ground role from supply chain to customer. An assembly house doesn't deal with boundary scan because it's already built in. However, the EMS supplier needs to know how to use boundary scan because it can save on board space.

Mucha also explained the crucial nature of risk ownership. Documentation at each step in the manufacturing process can help prove liability for field failures, for instance. OEM investment in product testing can pay off in mitigated failure risk. Risk, waiting periods, and manual assembly tasks all should be eschewed during the design phase, Stone added. Streamlining the product launch early allows you to define production benchmarks and create accurate lead time expectations for customers. However liability is divvyed up, make sure the terms are clear before production begins. If both the OEM customer and the EMS provider are trying to "win" during contract negotiations, aiming for a large short-term profit, neither company is going to be happy with the relationship. Each presenter underscored this point. If open communication and clear terms are not part of the production agreement or contract, the customer relationship will be strained, possibly costly, and possibly will endanger the success of the product being assembled.

In my day-to-day work, I'm not designing and building electronic assemblies, though that is what's constantly on my mind. I jump at the chance to peek over the shoulders of line operators, board designers, project managers, and so on at OEMs and EMS providers. In planning and executing this A-Line and EMS Trends panel, I got the chance to virtually sit down at their desks, thumb through their contracts, listen in on their strategies. What did I learn? You can't build a good board without a good business working around you, and vice versa.

Communication is key in any industry. Being a media outlet for the electronics assembly community, we at SMT understand the vital role communication plays in moving industry forward, increasing productivity and technological capability, and getting your job done. Each EMS provider on our panel serves a different niche of the electronics market, be it prototype development for new products or ruggedized assemblies, etc. Each share a common goal — to develop deep, open, and continuous relationships with their customers so that both are profitable, productive, and expanding. If you're looking for the broadest trend in the EMS industry, there it is in a nutshell.

SMT will be chairing a second EMS panel, next year at APEX in Las Vegas. "Industry Cost Challenges: EMS Solutions," will present case histories and lessons learned to attack common problems, like ensuring component integrity while filling gaps in the supply chain, and downshifting products from high to lower volumes.